Microsoft revenue up 18%, beating expectations, but profits come up short

Microsoft posted $23.4 billion in revenue for the June quarter, a 17.5 percent increase, but its earnings of 55 cents a share fell short of analysts’ expectations as the company reflected the acquisition of Nokia’s smartphone business on its financial statements for the first time.

Companywide profits (net income) fell to $4.6 billion, a 7 percent decline from the $4.9 billion in profits the same quarter a year ago, as the company absorbed the unprofitable Nokia business.

Satya Nadella

In a news release announcing the results this afternoon, Microsoft CEO Satya Nadella pointed to the company’s progress in providing cloud services to business. Microsoft said its commercial cloud services revenue — including Commercial Office 365 and Microsoft Azure — increased by $564 million, or 147 percent for the quarter.

“We are galvanized around our core as a productivity and platform company for the mobile-first and cloud-first world, and we are driving growth with disciplined decisions, bold innovation, and focused execution,” Nadella said. “I’m proud that our aggressive move to the cloud is paying off – our commercial cloud revenue doubled again this year to a $4.4 billion annual run rate.”

Microsoft said Office 365 Home and Personal users now exceed 5.6 million, an increase of more than 1 million since the quarter ended in March.

The newly created Phone Hardware division, which represents the former Nokia smartphone business, contributed $1.985 billion in revenue, with a gross margin of $54 million.

Revenue in Microsoft’s largest division, Devices & Consumer Licensing rose to $11.2 billion, from $10.6 billion the same quarter last year. This division includes Windows volume licensing for businesses, Office for businesses, Windows Server and related products.

In the Devices & Consumer Licensing business, which includes Office and Windows for consumers and small businesses, the company said revenue increased 9 percent, to $4.6 billion. The end of support for Windows XP was one factor, and businesses PC growth also helped.

The Computing and Gaming Hardware division posted $1.44 billion in revenue, up from $1.17 billion in the same quarter last year. This division includes Xbox One sales. Microsoft said it sold 1.1 million consoles in the quarter, up from 1 million a year ago, benefitting in part from a new $399 price for the Xbox One without a Kinect sensor.